Author: Standard Behavior

Interest Rates, Interest Rates, and Interest Rates

Talk of a steep series of rate hikes, persistently high inflation, recent recession worries, Covid lockdowns in China, and the backdrop of the war in Ukraine created stiff headwinds for stocks in April.

Minus the war and lockdowns in China, the overriding themes since the beginning of the year have been inflation and how the Federal Reserve might react to inflation. During April, most Fed officials pulled few punches, and investor sentiment reflected the sour mood.

Let’s review the table below. Stocks had a tough month as bond yields jumped. Furthermore, yields are up sharply since the beginning of the year. Without diving into a mind-numbing discussion of discounted cash flows, higher rates compete with stocks for an investor’s dollar.

Last year, yields held at stubbornly low levels, despite high inflation. This year, the aggressive stance from Fed officials has moved the needle on bonds.

Let’s look at a couple of remarks last month. “It is of paramount importance to get inflation down,” Fed Vice Chair Lael Brainard said in an early April speech (Wall Street Journal).

“Paramount” is a strong word. It wasn’t an off-the-cuff comment. It came in prepared remarks. Since she had been considered more dovish (reluctant to aggressively raise interest rates to slow inflation), her comments suggested other dovish members are on board.

San Francisco Fed President Mary Daly said high inflation “is as harmful as not having a job… If you don’t have the confidence (the Fed will use its inflation-fighting tools), let me give it to you (CNBC).”

What is the Fed trying to communicate? Well, Fed officials don’t want to surprise investors, especially if it involves rate increases. It’s better to hint at any pain rather than surprise with shock and awe.

One closely followed measure from the CME Group suggests a 50 bp (basis point, 1 bp =0.01%) rate hike at the May 4^th meeting is all but guaranteed. There is also a high probability May’s increase could be followed by 75 bp in mid-June, and another 50 bp in July.

While there are no guarantees as economic conditions could change, such a path would put the fed funds rate at 2.00-2.25% after the July meeting, up from 0.25—0.50% today.

It’s a magnitude of rate hikes we haven’t seen since 1994—see Figure 1, which is a repeat of last month’s graph.

In the 2000s, the Fed’s tone was more measured: a series of 25 bp rate hikes over two years, as it ‘pre-emptively’ moved against inflation. It was even more gradual in the 2010s. Today, the Fed is ‘reacting’ to inflation, hoping to atone for last year’s mistake, since it mistakenly believed inflation was temporary.

However, better-than-expected first quarter profits, according to Refinitiv, helped shield investors from even more volatility. Plus, most economic gauges point to economic growth.

For instances, if the economy were slowing significantly, we would see it in an uptick in layoffs.

First-time claims for unemployment insurance are near the lowest since the late 1960s. As Figure 2 illustrates, continuing claims, which measures the number of individuals who receive regular benefits, is at the lowest reading in over 50 years.

Besides, anecdotal reports from various companies, including restaurants, travel, and entertainment, suggest the consumer is healthy.

For example, an April 23^rd story in the Wall Street Journal:

Concert ticket prices soar on strong demand, not just inflation—Strong fan interest in better seats and experiences prompts more aggressive pricing at box office

Consumers would be far more reluctant to shell out the big bucks if they weren’t feeling good about their finances. Recent GDP data from the U.S. BEA confirms strong spending on services, though we are seeing a modest shift away from goods.

While wages aren’t keeping up with inflation, some stimulus money is still socked away in savings accounts, which is aiding spending.

But higher interest rates and incomes that aren’t keeping up with inflation could eventually lead to greater resistance. We are not there yet, as the Federal Reserve hopes to slow inflation without leading the economy into a recession.

It will require skill and a little bit of luck.

The recent rise in the dollar could help slow inflation for imported goods. Next, help with the supply chain would be welcome.

If you have any questions or want to discuss any other matters, please feel free to reach out to your advisor.

¹ The Dow Jones Industrials Average is an unmanaged index of 30 major companies which cannot be invested into directly. Past performance does not guarantee future results.

² The NASDAQ Composite is an unmanaged index of companies which cannot be invested into directly. Past performance does not guarantee future results.

³ The S&P 500 Index is an unmanaged index of 500 larger companies which cannot be invested into directly. Past performance does not guarantee future results.

⁴ The Global Dow is an unmanaged index composed of stocks of 150 top companies. It cannot be invested into directly. Past performance does not guarantee future results.

⁵ CME Group front-month contract; Prices can and do vary; past performance does not guarantee future results.

⁶ CME Group continuous contract; Prices can and do vary; past performance does not guarantee future results.

It is important that you do not use this e-mail to request or authorize the purchase or sale of any security or commodity, or to request any other transactions. Any such request, orders or instructions will not be accepted and will not be processed.

All items discussed in this report are for informational purposes only, are not advice of any kind, and are not intended as a solicitation to buy, hold, or sell any securities. Nothing contained herein constitutes tax, legal, insurance, or investment advice. Please consult the appropriate professional regarding your individual circumstance.

Stocks and bonds and commodities are not FDIC insured and can fall in value, and any investment information, securities and commodities mentioned in this report may not be suitable for everyone.

U.S. Treasury bonds and Treasury bills are guaranteed by the U.S. government and, if held to maturity, offer a fixed rate of return and guaranteed principal value. U.S. government bonds are issued and guaranteed as to the timely payment of principal and interest by the federal government. Treasury bills are certificates reflecting short-term (less than one year) obligations of the U.S. government.

Past performance is not a guarantee of future results.

Different investments involve different degrees of risk, and there can be no assurance that the future performance of any investment, security, commodity or investment strategy that is referenced will be profitable or be suitable for your portfolio.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material.

The information contained is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.

Before making any investments or making any type of investment decision, please consult with your financial advisor and determine how a security may fit into your investment portfolio, how a decision may affect your financial position and how it may impact your financial goals.

All opinions are subject to change without notice in response to changing market and/or economic conditions.

Copyright © 2022
Everspire
All rights reserved.

Resilience

The Dow Jones Industrial Average is down 5.8% since its January 4^th record high and the broader-based S&P 500 Index is off 5.5% since its January 3^rd record high, according to St. Louis Federal Reserve market data through March 31.

If we measure the respective peaks to the most recent troughs of both indexes, the Dow lost 11.3% (January 4—March 8) and the S&P 500 Index lost 13.0% (January 3—March 8).

Selloffs are inevitable, and losing ground is hardly a reason to get excited, even if the recent pullback is modest.

Yet, given the Russian invasion of Ukraine, high inflation, soaring oil/gas prices, and rising rates from the Federal Reserve, stocks have been resilient in the face of stiff headwinds.

The most immediate impact of the war has been on gasoline prices, as illustrated by Figure 1.

The jump in gasoline prices will have an immediate impact on inflation, and we’ll see it reflected in the March Consumer Price Index, when it is released in mid-April.

But the overall economic impact is less certain. For every penny increase in the price of gas, U.S. consumer spending drops by $1.18 billion a year, according to an estimate from Federated Global Investment Management (Bloomberg).

For example, a $0.75 jump in gasoline, if maintained over a year, would hit spending by roughly $90 billion. But U.S. Gross Domestic Product is over $24 trillion, which would translate to less than 0.4%. It’s not insignificant, but by itself, it’s not enough to throw the economy into a recession.

Still, it’s not simply gasoline prices that are rising, and we may see some resistance to higher prices in general.

For investors, war generated an enormous amount of uncertainty, and stocks lost ground in the wake of the invasion. Yet, fighting continues and stocks have moved off the early March low.

Ukraine is far from an ideal situation, and how the war may unfold is a big unknown. But recently, there have been no significant developments that might negatively affect investor sentiment, and investors seem to be taking the apparent stalemate in stride.

Put another way, investors have gradually adapted to a new normal.

It’s not that we are immune to wanton acts of aggression by Russia. We’re not. Investors view geopolitical events through a very narrow prism. That is, how it may affect economic growth.

During March, economic activity appeared to accelerate. Weekly first-time claims for jobless benefits fell to a 52-year low per the Dept of Labor, and the U.S. BLS reported 431,00 new jobs.

The Federal Reserve rediscovers its purpose

We haven’t seen a truly aggressive rate-hike cycle since 1994, when the Fed lifted the fed funds rate from 3% to 6% in one year—see Figure 2.

The last time we saw a 50 basis point (bp, 1 bp = 0.01%) rate increase was in 2000.

As illustrated in Figure 2, the Fed raised the fed funds rate last month by 25 bp to a range of 0.25—0.50%.

The Fed’s Summary of Economic Projections released in March suggests the fed funds rate could rise to 1.75—2.00% by the end of the year. One closely followed gauge from the CME Group suggests a fed funds rate of 2.50—2.75% is possible by year-end.

Of course, these are simply projections and measures of sentiment at a point in time. They are based on the aggressive tone taken by Fed Chief Powell, recent comments by Fed officials, today’s tight labor market, and high inflation.

The Fed’s goal is to slow overall economic demand, which is putting upward pressure on prices, and reduce the huge number of job openings, which puts upward pressure on wages. Both variables raise costs for businesses, which can get added to the price of retail goods.

Few would turn down a big raise. That’s understandable. But the Fed sees a wage-price spiral and too-strong demand as inflationary.

Of course, to bring down inflation, the Fed will need help from the supply chain, but the war in Ukraine will likely exacerbate problems, at least over the shorter term.

During the mid-1960s, mid-1980s, and mid-1990s, the Fed pre-emptively acted against the potential of higher inflation and engineered what analysts call a ‘soft landing,’ which simply means it didn’t throw the economy into a recession.

Today, the economy is creating plenty of jobs, but inflation is higher, which makes the Fed’s task more challenging.

Why is it more challenging? High inflation will likely require more aggressive rate increases, which might slow the economy too quickly.

The Fed is not acting proactively against the possibility of higher inflation. Instead, it is reacting to higher prices, hoping to bring inflation back to its 2% target without a recession, i.e., a hard landing.

If you have any questions or want to discuss any other matters, please feel free to reach out to your advisor.

¹ The Dow Jones Industrials Average is an unmanaged index of 30 major companies which cannot be invested into directly. Past performance does not guarantee future results.

² The NASDAQ Composite is an unmanaged index of companies which cannot be invested into directly. Past performance does not guarantee future results.

³ The S&P 500 Index is an unmanaged index of 500 larger companies which cannot be invested into directly. Past performance does not guarantee future results.

⁴ The Global Dow is an unmanaged index composed of stocks of 150 top companies. It cannot be invested into directly. Past performance does not guarantee future results.

⁵ CME Group front-month contract; Prices can and do vary; past performance does not guarantee future results.

⁶ CME Group continuous contract; Prices can and do vary; past performance does not guarantee future results.

It is important that you do not use this e-mail to request or authorize the purchase or sale of any security or commodity, or to request any other transactions. Any such request, orders or instructions will not be accepted and will not be processed.

All items discussed in this report are for informational purposes only, are not advice of any kind, and are not intended as a solicitation to buy, hold, or sell any securities. Nothing contained herein constitutes tax, legal, insurance, or investment advice. Please consult the appropriate professional regarding your individual circumstance.

Stocks and bonds and commodities are not FDIC insured and can fall in value, and any investment information, securities and commodities mentioned in this report may not be suitable for everyone.

U.S. Treasury bonds and Treasury bills are guaranteed by the U.S. government and, if held to maturity, offer a fixed rate of return and guaranteed principal value. U.S. government bonds are issued and guaranteed as to the timely payment of principal and interest by the federal government. Treasury bills are certificates reflecting short-term (less than one year) obligations of the U.S. government.

Past performance is not a guarantee of future results.

Different investments involve different degrees of risk, and there can be no assurance that the future performance of any investment, security, commodity or investment strategy that is referenced will be profitable or be suitable for your portfolio.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material.

The information contained is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.

Before making any investments or making any type of investment decision, please consult with your financial advisor and determine how a security may fit into your investment portfolio, how a decision may affect your financial position and how it may impact your financial goals.

All opinions are subject to change without notice in response to changing market and/or economic conditions.

Copyright © 2022
Everspire
All rights reserved.

Russia/Ukraine and the Fed Knock Raise Uncertainty

There are three major themes that have been uppermost in the minds of investors since the start of the year.

1. Russia/Ukraine,
2. The swift pivot by Federal Reserve, and
3. Strong corporate profits

The first two have been significant headwinds for equities: the Russia/Ukraine crisis and subsequent invasion, and the Fed’s hawkish rhetoric.

But the downside since the beginning of the year has been cushioned by the expanding economy, which has fueled the rise in corporate profits.

Nevertheless, the story we have all been following has been the brewing crisis and eventual invasion of Ukraine by Russia.

Short-term investors usually step back when uncertainty rises because increased uncertainty can lead to additional outcomes for the U.S. and global economy. Many of those outcomes, even if remote, are to the downside.

Therefore, short-term investors recalibrate and attempt to discount the uncertainty. Over time, the new reality gets incorporated into the outlook and the focus returns to the domestic economy. That has been the historical pattern.

Ultimately, how the crisis affects the U.S. economy will play a significant role for markets. In the case of Russia and Ukraine, the direct exposure of the U.S. economy is limited. It includes a few commodities, including oil. The U.S. receives very little oil from Russia, according to the Energy Information Admin., but higher oil prices will translate into higher energy prices.

Nevertheless, a February 28^th headline in the Wall Street Journal seems to sum it up well: U.S. positioned to withstand economic shock from Ukraine crisis, effects could push inflation higher from already elevated levels, but economic expansion appears to be on solid ground.

A more aggressive turn by the Fed has also created headwinds. As 2021 unfolded, Fed Chief Powell assured us that the surge in inflation was tied to the reopening of the economy and short-term supply disruptions. The uptick in inflation, he said, would be “transitory.”

But inflation has proved to be a much trickier problem than Powell and the Fed expected, and a more hawkish monetary policy has been openly discussed by Fed officials.

The first rate hike is expected to occur at the March meeting—probably a 0.25% increase in the fed funds rate to 0.25—0.50%. Additionally, a key gauge from the CME Group suggests that the current fed funds rate could rise to 1.25—1.50% by the end of the year.

That’s a far cry from a year ago when Powell strongly suggested no rate hikes through at least 2023.

But let me caution that any projection on rates is highly dependent on the economy and inflation.

Key question: can the Fed bring inflation back to its 2% target without throwing the economy into a recession? It may need some help from the supply chain and outside factors. In addition, Russia’s war against Ukraine may complicate matters.

But corporate profits have been strong, with S&P 500 earnings up 32% from one year ago, per Refinitiv. On January 1, analysts were forecasting a still sizable gain of 22%. It has helped act like a shock absorber against today’s headwinds.

Final thoughts

The S&P 500 Index registered its first 10% drop since the bull market began in late March 2020. Through careful planning, diversification, and managing behavior we have navigated crises in the past and will continue to do so into the future. Through diversification and various measures, we take steps to help manage risk.

But keep this in mind, too. In the 32 times the S&P 500 Index has shed at least 10% since 1980, one year after hitting a bottom, the index was up 25% on average. It was higher 90% of the time, according to LPL Research.

We won’t try to pinpoint a bottom, and we know that past performance is no guarantee of future results, but the historical data are encouraging.

Since WWII, LPL Research compiled the market reaction to 22 “market shock events.” On average, the total drawdown was just 4.6% for the S&P 500 Index.

During the Cuban missile crisis, the S&P 500 lost 6.6% over eight-trading days. For those of us who are old enough to remember, the world appeared to be on the brink of nuclear annihilation.

The biggest decline in LPL’s survey occurred after the surprise attack on Pearl Harbor. The index shed nearly 20% in 143 days but managed to erase losses within one year of the attack.

Historically, geopolitical challenges have had only a short-term impact on the broader market. Whether the U.S. economy enters a recession has been the biggest factor for stocks.

We are bracing for more volatility, but we do not think the U.S. economy will wither under the war Russia has brought to Ukraine.

If you have any questions or want to discuss any other matters, please feel free to reach out to your advisor.

¹ The Dow Jones Industrials Average is an unmanaged index of 30 major companies which cannot be invested into directly. Past performance does not guarantee future results.

² The NASDAQ Composite is an unmanaged index of companies which cannot be invested into directly. Past performance does not guarantee future results.

³ The S&P 500 Index is an unmanaged index of 500 larger companies which cannot be invested into directly. Past performance does not guarantee future results.

⁴ The Global Dow is an unmanaged index composed of stocks of 150 top companies. It cannot be invested into directly. Past performance does not guarantee future results.

⁵ CME Group front-month contract; Prices can and do vary; past performance does not guarantee future results.

⁶ CME Group continuous contract; Prices can and do vary; past performance does not guarantee future results.

It is important that you do not use this e-mail to request or authorize the purchase or sale of any security or commodity, or to request any other transactions. Any such request, orders or instructions will not be accepted and will not be processed.

All items discussed in this report are for informational purposes only, are not advice of any kind, and are not intended as a solicitation to buy, hold, or sell any securities. Nothing contained herein constitutes tax, legal, insurance, or investment advice. Please consult the appropriate professional regarding your individual circumstance.

Stocks and bonds and commodities are not FDIC insured and can fall in value, and any investment information, securities and commodities mentioned in this report may not be suitable for everyone.

U.S. Treasury bonds and Treasury bills are guaranteed by the U.S. government and, if held to maturity, offer a fixed rate of return and guaranteed principal value. U.S. government bonds are issued and guaranteed as to the timely payment of principal and interest by the federal government. Treasury bills are certificates reflecting short-term (less than one year) obligations of the U.S. government.

Past performance is not a guarantee of future results.

Different investments involve different degrees of risk, and there can be no assurance that the future performance of any investment, security, commodity or investment strategy that is referenced will be profitable or be suitable for your portfolio.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material.

The information contained is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.

Before making any investments or making any type of investment decision, please consult with your financial advisor and determine how a security may fit into your investment portfolio, how a decision may affect your financial position and how it may impact your financial goals.

All opinions are subject to change without notice in response to changing market and/or economic conditions.

Copyright © 2022
Everspire
All rights reserved

January’s Rocky Start

January was an uncertain month for investors. It didn’t take long for a more aggressive stance by the Federal Reserve to inject volatility into the market. But does the first month set the tempo for the rest of the year? Before we delve into the “what and why,” let’s look at what is popularly known as the January barometer.

The January barometer suggests that the performance of the S&P 500 Index in January foreshadows the performance for the rest of the year. But does it really work?

Since 1945, the January barometer has held true roughly 75% of the time when January was positive, according to Fidelity Investments. That is to say, in most cases, an up January has led to an up year.

One reason may be fairly simple: the historical proclivity of stocks to rise. However, what happens when January finishes in the red, as we saw last month? Well, the answer is less clear.

Going back to 1950, in 14 out of 28 years when January ended lower, the stock market gained ground during the year, sometimes by a very substantial amount. That was the case in 2020 and 2021.

Of course, what happens in the past does not always correctly predict what will happen in the future. There are much more important fundamental factors, including profits, the economy, monetary policy, interest rates, and more.

The Fed—no more Mr. Nice Guy

Last year’s kinder and gentler Federal Reserve has been replaced by a Fed that is rattling its saber. It’s a far cry from a year ago when Fed Chief Powell suggested there would be no rate hikes through at least 2023.

Figure 1 illustrates the Fed has been much more patient this time around. In the last cycle, it began a gradual series of rate hikes in 2015 when inflation was low, and the jobless rate was 5.0%. Today, the Fed is behind the inflation curve and strongly hinted it would like to catchup.

But trying to rein in inflation without causing an economic hard landing could be a challenge.

In December, the Fed’s own Economic Projections suggested three, ¼ percentage-point rate hikes in 2022. In early January, several Fed officials suggested at least four. By month’s end, Fed Chief Powell wouldn’t rule out the possibility of one rate hike per meeting (there are eight schedule meetings each year; January was the first).

Nearly all observers expect the first rate increase to occur in March.

How might rising interest rates slow inflation? The Fed sees higher interest rates as a way to put the brakes on faster economic growth, slow overall demand, and take pressure off prices.

The economy ended the year with an annualized growth rate of 6.9% in the fourth quarter, according to the U.S. BEA. Last year, three of the four quarters saw economic growth north of 6%. That’s impressive.

Strong economic growth lowered the jobless rate to 3.9% as of December, per the U.S. BLS. Further, significant labor shortages in some industries are pushing up wages while supply chain disruptions are exacerbating inflation. Wage hikes are great for workers, but they can also lead to higher prices.

As we enter February, investors are attempting to price in higher interest rates, which could offer stiffer competition to stocks. However, economic growth supports higher profits, which aid stocks. It’s akin to an economic tug of war.

Expecting volatility

If we travel back 100 years, we’d find that volatility is the norm. According to CNBC, the average intra-year peak to trough in the stock market going back to 1928 was 16.5%. In 59 of 94 years, intra-year losses were in excess of 10%. In 24 of the 94 years, losses topped 20%. Yet, in most cases, stocks finished the year higher.

Since 1921, the Dow posted an annual advance 70% of the time, per TradingNInvestment. What unnerves some investors is the idea that stocks seem to take the stairs up and the elevator down.

Since peaking early in the year, the S&P 500 Index’s peak-to-trough decline was 9.8%, according to St. Louis Federal Reserve data. It’s just shy of an official correction of 10%. The decline in the tech-heavy Nasdaq was more pronounced.

And, according to the Wall Street Journal, speculative and unprofitable firms have been hit the hardest. To paraphrase Warren Buffett, you find out whose swimming without clothes when the tide goes out.

As we’ve cautioned in the past, making investment decisions based on market action is rarely profitable. A disciplined approach based on one’s long-term goals has historically been the straightest path to reaching one’s financial goals.

If you have any questions or want to discuss any other matters, please feel free to reach out to your advisor.

¹ The Dow Jones Industrials Average is an unmanaged index of 30 major companies which cannot be invested into directly. Past performance does not guarantee future results.

² The NASDAQ Composite is an unmanaged index of companies which cannot be invested into directly. Past performance does not guarantee future results.

³ The S&P 500 Index is an unmanaged index of 500 larger companies which cannot be invested into directly. Past performance does not guarantee future results.

⁴ The Global Dow is an unmanaged index composed of stocks of 150 top companies. It cannot be invested into directly. Past performance does not guarantee future results.

⁵ CME Group front-month contract; Prices can and do vary; past performance does not guarantee future results.

⁶ CME Group continuous contract; Prices can and do vary; past performance does not guarantee future results.

It is important that you do not use this e-mail to request or authorize the purchase or sale of any security or commodity, or to request any other transactions. Any such request, orders or instructions will not be accepted and will not be processed.

All items discussed in this report are for informational purposes only, are not advice of any kind, and are not intended as a solicitation to buy, hold, or sell any securities. Nothing contained herein constitutes tax, legal, insurance, or investment advice. Please consult the appropriate professional regarding your individual circumstance.

Stocks and bonds and commodities are not FDIC insured and can fall in value, and any investment information, securities and commodities mentioned in this report may not be suitable for everyone.

U.S. Treasury bonds and Treasury bills are guaranteed by the U.S. government and, if held to maturity, offer a fixed rate of return and guaranteed principal value. U.S. government bonds are issued and guaranteed as to the timely payment of principal and interest by the federal government. Treasury bills are certificates reflecting short-term (less than one year) obligations of the U.S. government.

Past performance is not a guarantee of future results.

Different investments involve different degrees of risk, and there can be no assurance that the future performance of any investment, security, commodity or investment strategy that is referenced will be profitable or be suitable for your portfolio.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material.

The information contained is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.

Before making any investments or making any type of investment decision, please consult with your financial advisor and determine how a security may fit into your investment portfolio, how a decision may affect your financial position and how it may impact your financial goals.

All opinions are subject to change without notice in response to changing market and/or economic conditions.

Copyright © 2022
Everspire
All rights reserved

A Grand Economic Reopening, a Gilded Age for Investors

The reopening of the economy, new vaccines, the pandemic, strong economic growth, rising oil and home prices, and a burst of inflation were among the major events last year.

For investors, 2020’s advance spilled over into 2021. The S&P 500 Index rose 26.89%, excluding dividends. With dividends reinvested, the index gained 28.71% (S&P DJ Indices).

Simply put, economic growth translated into much-better-than expected corporate profits, according to Refinitiv. Low interest rates and low Treasury yields added to the luster of equities.

Fig. 1 reviews the best performing bull markets since WWII, including the current run. As the graphic illustrates, the current bull market, which began late March 2020, is off to a fast start.

Ultra-low interest rates, very easy money from the Federal Reserve, and stellar corporate profits have more than offset inflation fears and economic worries about the ongoing pandemic.

Overall, the economic expansion has been robust, but it has not benefited all sectors equally, as highlighted in Fig. 2

Stimulus money favored consumer goods. Pent-up demand is aiding services, such as recreation and travel, but it continues to lag. And that leads us to this year’s burst of inflation.

We haven’t seen this type of inflation since the late 1940s

This is not your father’s inflation. It’s your grandfather’s inflation.

When millions of troops came home after World War II, they demanded everything from appliances to clothing.

Further, a wartime economy that favored production of military equipment over consumer items led to rationing and pent-up demand for consumer goods after the war.

The shift to peacetime production didn’t occur overnight, and prices temporarily spiked.

Today, we have trillions in stimulus, a reopening of the economy, and a shortage of some goods tied to global supply chain woes. In other words, strong demand collides with supply shortages. Mix in a super easy Fed, and inflation hit its fastest pace in 40 years.

Peeking ahead at 2022

“It’s tough to make predictions, especially about the future.”

—Baseball manager/philosopher Yogi Berra

Including reinvested dividends, the S&P 500 Index has doubled over the last 3 years, according to S&P DJ Indices. It’s natural to ask if this can continue into 2022. Recognizing the obstacles faced when peering into the future, let’s dust off our crystal ball and touch on some of the key issues as we move into 2022.

China’s fast-growing economy has been fueled by debt, and real estate is no exception. During the fall, cracks appeared. Real estate is a big part of China’s economy. If it crumbles, expect it to ripple through the global economy. However, that’s a big ‘if.’ Odds of a 2022 real estate collapse in China probably aren’t high, but what happens in China bears watching.

Inflation is uppermost on the minds of many folks. Is inflation set to peak early in the year? Peaking isn’t the same as price stability. It simply means price hikes aren’t accelerating as quickly. Depending on the trajectory of Covid and lockdowns in various countries, most analysts believe supply chain problems will ease sometime next year. But rising wages may become a problem. If so, businesses could raise prices to compensate for higher costs.

If we avoid a wage-price spiral, economic growth moderates, and supply chain woes recede, the rate of inflation will probably slow at a quicker pace. It would also ease pressure on the Fed.

The Federal Reserve has taken notice of price increases. It is unwinding its bond buying program at a faster pace and is considering three rate hikes in 2022. Could we see more than three rate hikes? Inflation will play a big role in the Fed’s stance.

Despite much higher inflation this year and talk of a more hawkish Fed, the yield on the 10-year Treasury remains incredibly low, finishing last year at 1.52%, per the U.S. Treasury Dept.

Robust economic growth, higher inflation, and a less dovish Fed (and fewer Treasury bond buys by the Fed) should be translating into much higher yields. That hasn’t happened – see Fig. 4.

Either bond investors are expecting inflation and the economy to slow next year, or there have been fundamental changes in the bond market that are holding down yields.

Whatever the cause may be, low yields are supportive of stocks in an expanding economy. However, a jump in yields could create some market volatility.

Finally, how will the pandemic play out? Will new variants surface? The Delta variant temporarily slowed growth in the late summer, but market reaction was muted.

As we enter 2022, Omicron is getting attention. U.S. cases are rising, and some folks may hesitate to congregate in public places, which could dampen growth. Yet, we’ve seen limited market reaction so far. A late December survey by the Wall Street Journal reflected concerns of a temporary global slowdown in early 2022. So far, local and state governments have been reluctant to impose significant new restrictions.

New highs and perspective

Fig. 5 illustrates the number of new closing highs for the S&P 500 Index in each respective year. In 2021, we had 70, which is on top of 33 new highs in 2020.

New highs can tempt some investors to back away from equities or wait for a big pullback to put new cash to work. Others are tempted to become aggressive. We may see a pullback, but new highs are typically the hallmark of a bull market, as illustrated by Figure 5.

Yet, we recognize that downturns are a part of investing. Based on your goals, circumstances, and risk tolerance, we craft portfolios to help manage risk, but we can’t eliminate risk.

If one trades the fear of selloffs for a savings account, one won’t participate in the long-term upside that stocks have historically offered. Conversely, take on too much risk and you may experience sleepless nights in a swift downturn.

If life events have forced you to rethink your goals, let’s talk. If not, adherence to one’s financial plan and a long-term focus have historically been the straightest path to reaching one’s financial goals. We may see volatility next year. But predictions are simply educated guesses. If history is our guide, selloffs are followed by rebounds.

If you have any questions or want to discuss any other matters, please feel free to reach out to your advisor.

¹ The Dow Jones Industrials Average is an unmanaged index of 30 major companies which cannot be invested into directly. Past performance does not guarantee future results.

² The NASDAQ Composite is an unmanaged index of companies which cannot be invested into directly. Past performance does not guarantee future results.

³ The S&P 500 Index is an unmanaged index of 500 larger companies which cannot be invested into directly. Past performance does not guarantee future results.

⁴ The Global Dow is an unmanaged index composed of stocks of 150 top companies. It cannot be invested into directly. Past performance does not guarantee future results.

⁵ CME Group front-month contract; Prices can and do vary; past performance does not guarantee future results.

⁶ CME Group continuous contract; Prices can and do vary; past performance does not guarantee future results.

It is important that you do not use this e-mail to request or authorize the purchase or sale of any security or commodity, or to request any other transactions. Any such request, orders or instructions will not be accepted and will not be processed.

All items discussed in this report are for informational purposes only, are not advice of any kind, and are not intended as a solicitation to buy, hold, or sell any securities. Nothing contained herein constitutes tax, legal, insurance, or investment advice. Please consult the appropriate professional regarding your individual circumstance.

Stocks and bonds and commodities are not FDIC insured and can fall in value, and any investment information, securities and commodities mentioned in this report may not be suitable for everyone.

U.S. Treasury bonds and Treasury bills are guaranteed by the U.S. government and, if held to maturity, offer a fixed rate of return and guaranteed principal value. U.S. government bonds are issued and guaranteed as to the timely payment of principal and interest by the federal government. Treasury bills are certificates reflecting short-term (less than one year) obligations of the U.S. government.

Past performance is not a guarantee of future results.

Different investments involve different degrees of risk, and there can be no assurance that the future performance of any investment, security, commodity or investment strategy that is referenced will be profitable or be suitable for your portfolio.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material.

The information contained is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.

Before making any investments or making any type of investment decision, please consult with your financial advisor and determine how a security may fit into your investment portfolio, how a decision may affect your financial position and how it may impact your financial goals.

All opinions are subject to change without notice in response to changing market and/or economic conditions.

Copyright © 2022
Everspire
All rights reserved

A Greek Alphabet Soup

In December 2020, the news media reported a new variant of the coronavirus that causes COVID-19. Since then, other variants have been identified and are under investigation, according to John Hopkins Medicine.

If we quickly review the CDC’s website, we count 11 variants. Many remain under the radar, such as the Alpha, Beta, Gamma, and Epsilon. Lambda is no longer mentioned by the CDC.

The Delta variant, labeled a variant of concern, has been responsible for the spike in cases during the summer and fall.

None have caused much concern among investors amid the growing use of vaccines and therapeutics. This is very important to the economy and investors, as these tools have been used in place of economically destructive lockdowns and social distancing restrictions.

It’s not that they are full proof. They aren’t. But lockdowns and various restrictions had been the preferred tool for government officials.

Enter Omicron

On Black Friday, Omicron was labeled a variant of concern by health officials. It’s still very early, and the situation is fluid, but Omicron appears to be very contagious, and current vaccines and treatments may be less effective.

On Black Friday, the knee-jerk reaction among short-term investors was to sell first and ask questions later, as they openly fretted about any potential impact on the U.S. and global economy.

Following sharp gains over the last year, it’s not a surprise that unexpected bad news can create the right conditions for a selloff. But end-of-month weakness doesn’t necessarily presage further losses.

Today, short-term traders are trading on headlines. If further bad news is not forthcoming or updates to vaccines and treatments prove to be effective against Omicron, we could see volatility brought on by the new variant recede.

Flexing its muscles

As the month ended, we received a signal from Fed Chief Powell that the Fed is starting to take inflation more seriously.

“At this point, the economy is very strong and inflationary pressures are higher, and it is therefore appropriate in my view to consider wrapping up the taper of our asset purchases … perhaps a few months sooner,” Fed Chief Powell said before a Senate committee.

In early November, the Fed said it would begin tapering its $120 billion in monthly bond purchases by $15 billion per month in November and again in December. Economic conditions would dictate the pace in 2022.

November 30^th comment was a shift in Powell’s stance, and investors took notice.

Yes, Virginia, the economy is strong, but so is inflation

Moody’s High Frequency GDP model puts growth at an impressive 8.5% in Q4. The Atlanta Fed’s GDPNow Model is tracking Q4 at 8.6%. Yes, Q4 is still in play, but it’s a sharp acceleration from Q2’s 2.1%, per the U.S. BEA.

However, the Consumer Price Index (CPI) rose 6.2% versus one year ago. It’s a 30-year high. And it’s not simply food and gasoline that has driven up prices.

The core CPI, which excludes food and energy, also hit a 30-year high—see Figure 1.

Pent-up demand and a boatload of pandemic stimulus are fueling economic activity. In addition, raw material costs and wages are rising, and supply has been affected by production woes around the globe. It’s the perfect storm for higher inflation, and it may finally have the Fed’s attention.

Final thoughts

Solid economic growth, impressive profit growth, and low interest rates, which offer little competition for stocks, have sparked strong gains this year for investors in well-diversified stock portfolios. But stocks are never immune from volatility.

Yet, volatility is usually short lived. Over long periods, the major stock market indexes have had an upward bias. But we recognize that gains don’t come in a straight line.

We continue to suggest adherence to your long-term financial plan. It doesn’t eliminate risk but helps manage risk. We also discourage timing the market. Few if any can consistently pick the peaks and valleys in the market.

Time in the market, not timing the market, has historically been the best long-term path for wealth creation and reaching one’s financial goals.

If you have any questions or want to discuss any other matters, please feel free to reach out to your advisor.

¹ The Dow Jones Industrials Average is an unmanaged index of 30 major companies which cannot be invested into directly. Past performance does not guarantee future results.

² The NASDAQ Composite is an unmanaged index of companies which cannot be invested into directly. Past performance does not guarantee future results.

³ The S&P 500 Index is an unmanaged index of 500 larger companies which cannot be invested into directly. Past performance does not guarantee future results.

⁴ The Global Dow is an unmanaged index composed of stocks of 150 top companies. It cannot be invested into directly. Past performance does not guarantee future results.

⁵ CME Group front-month contract; Prices can and do vary; past performance does not guarantee future results.

⁶ CME Group continuous contract; Prices can and do vary; past performance does not guarantee future results.

It is important that you do not use this e-mail to request or authorize the purchase or sale of any security or commodity, or to request any other transactions. Any such request, orders or instructions will not be accepted and will not be processed.

All items discussed in this report are for informational purposes only, are not advice of any kind, and are not intended as a solicitation to buy, hold, or sell any securities. Nothing contained herein constitutes tax, legal, insurance, or investment advice. Please consult the appropriate professional regarding your individual circumstance.

Stocks and bonds and commodities are not FDIC insured and can fall in value, and any investment information, securities and commodities mentioned in this report may not be suitable for everyone.

U.S. Treasury bonds and Treasury bills are guaranteed by the U.S. government and, if held to maturity, offer a fixed rate of return and guaranteed principal value. U.S. government bonds are issued and guaranteed as to the timely payment of principal and interest by the federal government. Treasury bills are certificates reflecting short-term (less than one year) obligations of the U.S. government.

Past performance is not a guarantee of future results.

Different investments involve different degrees of risk, and there can be no assurance that the future performance of any investment, security, commodity or investment strategy that is referenced will be profitable or be suitable for your portfolio.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material.

The information contained is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.

Before making any investments or making any type of investment decision, please consult with your financial advisor and determine how a security may fit into your investment portfolio, how a decision may affect your financial position and how it may impact your financial goals.

All opinions are subject to change without notice in response to changing market and/or economic conditions.

Copyright © 2021
Everspire
All rights reserved.

October Trick or Treating Yields Treat

Historically, September has not been kind to investors. Using S&P 500 data from the St. Louis Federal Reserve dating back to 1970, September ranks dead last in returns.

But October has the ghoulish reputation. The Crash of 1929 and 1987 were in October, and the selloff in October 2008 was tied to the financial crisis.

But reputations don’t always square up with reality. October has historically been a favorable month for stocks, according to long-term averages (St. Louis Federal Reserve data).

Following the biggest monthly decline since March 2020, the S&P 500 Index³ rallied last month, posting its best monthly return of 2021—see Figure 1. The index, along with the Dow Jones Industrial Average¹, set multiple new highs late in the month.

More impressively, the S&P 500 has cobbled together strong returns for much of the year. Seven of the last ten months have seen an advance of at least 2% in the broad-based index.

Since the beginning of the year, the S&P 500 has set 59 new closing highs, according to LPL Research and S&P 500 data from the St. Louis Fed.

So, what helped turn stocks around following a modest decline in September? The start of Q3 earnings season was the primary catalyst for October’s convincing performance.

Given the unending chatter about slowing economic growth, rising inflation, cost pressures, and significant supply chain bottlenecks, investors were too pessimistic going into the season. Expectations had been lowered and anxieties were high.

The large banks unofficially kicked off earnings season in the middle of the month. Results came in much better than expected, according to CNBC and the Wall Street Journal, and it sparked a shift in sentiment.

Over a two-day period that ended October 15, the Dow rallied 917 points, or 2.7%, according to market data provided by the St. Louis Fed. Within a few days, the Dow and the S&P 500 Index claimed fresh territory.

That doesn’t mean there weren’t any problems. A number of firms said cost pressures and supply chain bottlenecks hampered results. Overall, however, the numbers have been strong.

Here’s another short, but more granular look. On October 1, analysts were forecasting a 29.4% rise in S&P 500 profits versus a year ago, per Refinitiv.

As of October 29 (with 56% of companies having reported results), analysts had ratcheted their estimate to 39.2%, a significant upward revision. As we’ve seen in recent quarters, Wall Street analysts have been far too conservative in their profit forecasts.

Anything north of 20% would historically be strong.

Today, we’re comparing recent results with numbers from a year ago, when the economy was just beginning to recover from a short but severe recession. Still, an upward revision of nearly 10 percentage points is impressive.

Also aiding sentiment, analysts have upwardly revised estimates for Q4 and 2022, which have also aided the broader stock market.

With the economy growing and corporate profits exceeding forecasts, low interest rates have left investors with few options.

Final thoughts

Solid economic growth, impressive profit growth, and low interest rates, which offer little competition for stocks, have sparked strong gains this year for investors in well-diversified stock portfolios.

Yet, and not to throw a cold towel on the strong year-to-date-performance, we can never discount the possibility of a market correction.

Inflation remains a threat and the Federal Reserve has tilted slightly more hawkish as of late. Nonetheless, the fundamentals have been quite positive.

If you have any questions or want to discuss any other matters, please feel free to reach out to your advisor.

¹ The Dow Jones Industrials Average is an unmanaged index of 30 major companies which cannot be invested into directly. Past performance does not guarantee future results.

² The NASDAQ Composite is an unmanaged index of companies which cannot be invested into directly. Past performance does not guarantee future results.

³ The S&P 500 Index is an unmanaged index of 500 larger companies which cannot be invested into directly. Past performance does not guarantee future results.

⁴ The Global Dow is an unmanaged index composed of stocks of 150 top companies. It cannot be invested into directly. Past performance does not guarantee future results.

⁵ CME Group front-month contract; Prices can and do vary; past performance does not guarantee future results.

⁶ CME Group continuous contract; Prices can and do vary; past performance does not guarantee future results.

It is important that you do not use this e-mail to request or authorize the purchase or sale of any security or commodity, or to request any other transactions. Any such request, orders or instructions will not be accepted and will not be processed.

All items discussed in this report are for informational purposes only, are not advice of any kind, and are not intended as a solicitation to buy, hold, or sell any securities. Nothing contained herein constitutes tax, legal, insurance, or investment advice. Please consult the appropriate professional regarding your individual circumstance.

Stocks and bonds and commodities are not FDIC insured and can fall in value, and any investment information, securities and commodities mentioned in this report may not be suitable for everyone.

U.S. Treasury bonds and Treasury bills are guaranteed by the U.S. government and, if held to maturity, offer a fixed rate of return and guaranteed principal value. U.S. government bonds are issued and guaranteed as to the timely payment of principal and interest by the federal government. Treasury bills are certificates reflecting short-term (less than one year) obligations of the U.S. government.

Past performance is not a guarantee of future results.

Different investments involve different degrees of risk, and there can be no assurance that the future performance of any investment, security, commodity or investment strategy that is referenced will be profitable or be suitable for your portfolio.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material.

The information contained is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.

Before making any investments or making any type of investment decision, please consult with your financial advisor and determine how a security may fit into your investment portfolio, how a decision may affect your financial position and how it may impact your financial goals.

All opinions are subject to change without notice in response to changing market and/or economic conditions.

Copyright © 2021
Everspire
All rights reserved

September and Hurdles

Historically, September has not been kind to investors. Using S&P 500 data over the last 50 years, September ranks dead last, with an average return of -0.73% excluding dividends.

Since 2010, the S&P 500 Index’s return has been negative six times, including last month, which saw the broad-based index decline by 4.8%.

But the third quarter started out on a firm note, with gains continuing through August. As we’ve seen for much of the year, economic growth, very strong profit growth, and low interest rates have fueled the market’s spectacular rise.

Since the new bull market began in late March 2020, the S&P 500 Index has yet to fall by 10%, which would be considered a correction—see Figure 1.

While we have had selloffs this year, they have been short-lived. We have yet to see a pullback greater than 5%, until now (Figure 1). Still, a 5% pullback is modest.

 

We’re due for some type of consolidation, but timing a correction and correctly calling the bottom (and doing it consistently) is a feat few, if any, have mastered.

Bottlenecks, the Fed, and the economy

Last month, uncertainty crept into market sentiment. On the inflation front, much can be blamed on strong demand for consumer goods and a supply chain that cannot keep up. And Covid-related bottlenecks and supply disruptions aren’t going away quickly.

Fed Chief Jerome Powell had been optimistic that supply constraints would be temporary, but he conceded last month that inflation has been “frustrating” and believes it will run into 2022.

“It’s also frustrating to see the bottlenecks and supply chain problems not getting better — in fact, at the margins, apparently getting a little bit worse. We see that continuing into next year probably, and holding up inflation longer than we had thought,” he said.

Blown inflation projections aside, we can take some solace that outsized gains in a few items have primarily driven up the Consumer Price Index (CPI), per U.S. BLS data.

The rate of increase for services are within their long-term range. But consumer goods have sped up amid global supply chain issues and tight supplies of key raw materials (Figure 2).

We not only see it in the graphic, but a slew of companies have also acknowledged the problem in their quarterly earnings reports.

Further, a slightly more hawkish tilt by the Fed also leaned on sentiment, with central bankers now hinting a rate hike could come by late 2022, per its quarterly projections.

Meanwhile, economic growth is slowing more quickly than expected, as stimulus fades and labor shortages and supply chain disruptions take their toll. For example, the semiconductor shortage has been especially acute for automakers.

Drama on Capitol Hill, China, and Covid

Separately, the debate on raising the debt ceiling is causing jitters. The government will lose its ability to borrow by October 18, according to the U.S. Treasury Dept. A default on U.S. Treasuries has never occurred.

It’s a very unlikely event, but it would have a detrimental impact on financial markets and the economy if Congress fails to raise the debt ceiling.

Finally, we’re seeing problems surface in China’s real estate market. Such problems may stay contained to China, but they made headlines last month.

The jump in Covid cases is having some effect on the economy. More recently, however, CDC data shows that new cases have slowed. Let’s see how this plays out later in the fall.

Yet, let’s not get too pessimistic.  Stocks have surged over the last year. Short-term traders are looking for reasons to step back, and hurdles that surfaced last month provided a good excuse.

While any number of short-term issues can create volatility, the economic fundamentals, growth and low interest rates, cushioned the downside last month.

If you have any questions or want to discuss any other matters, please feel free to reach out to your advisor.

¹ The Dow Jones Industrials Average is an unmanaged index of 30 major companies which cannot be invested into directly. Past performance does not guarantee future results.

² The NASDAQ Composite is an unmanaged index of companies which cannot be invested into directly. Past performance does not guarantee future results.

³ The S&P 500 Index is an unmanaged index of 500 larger companies which cannot be invested into directly. Past performance does not guarantee future results.

⁴ The Global Dow is an unmanaged index composed of stocks of 150 top companies. It cannot be invested into directly. Past performance does not guarantee future results.

⁵ CME Group front-month contract; Prices can and do vary; past performance does not guarantee future results.

⁶ CME Group continuous contract; Prices can and do vary; past performance does not guarantee future results.

It is important that you do not use this e-mail to request or authorize the purchase or sale of any security or commodity, or to request any other transactions. Any such request, orders or instructions will not be accepted and will not be processed.

All items discussed in this report are for informational purposes only, are not advice of any kind, and are not intended as a solicitation to buy, hold, or sell any securities. Nothing contained herein constitutes tax, legal, insurance, or investment advice. Please consult the appropriate professional regarding your individual circumstance.

Stocks and bonds and commodities are not FDIC insured and can fall in value, and any investment information, securities and commodities mentioned in this report may not be suitable for everyone.

U.S. Treasury bonds and Treasury bills are guaranteed by the U.S. government and, if held to maturity, offer a fixed rate of return and guaranteed principal value. U.S. government bonds are issued and guaranteed as to the timely payment of principal and interest by the federal government. Treasury bills are certificates reflecting short-term (less than one year) obligations of the U.S. government.

Past performance is not a guarantee of future results.

Different investments involve different degrees of risk, and there can be no assurance that the future performance of any investment, security, commodity or investment strategy that is referenced will be profitable or be suitable for your portfolio.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material.

The information contained is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.

Before making any investments or making any type of investment decision, please consult with your financial advisor and determine how a security may fit into your investment portfolio, how a decision may affect your financial position and how it may impact your financial goals.

All opinions are subject to change without notice in response to changing market and/or economic conditions.

Copyright © 2021
Everspire
All rights reserved.

Dodging Covid and Global Troubles

August is historically a weak month for stocks. Reviewing S&P data back to 1970, the average monthly return for the S&P 500 Index in August, excluding dividends, is just 0.21%. August ranks 11 out of 12. September is the worst month, with an average return of -0.65%.

Yet, the table of returns illustrates investors overlooked troubling developments last month. Notably, the S&P 500 and the NASDAQ Composite notched several record highs in August. Both are sitting on sizable year-to-date gains. Why?

The same powerful tailwinds that have been in place for much of the year—economic growth, very strong profit growth, and very low interest rates—remain in place.

But, you may ask, “What about the rise in Covid cases?” So far, investors don’t believe the jump in Covid will have a material impact on U.S. economic growth. In past surges, local and state governments restricted economic activity to curb the spread. Today, the market is viewing the vaccines as an inoculation against a rapid slowdown in the economy.

While the highly contagious Delta variant or any future variants could eventually disrupt activity, investors are not currently concerned about an economic impact.

You may also ask, “What about troubling news spewing out of Afghanistan?” The tragedy unfolding in Asia is disturbing. Investors, however, view the world through a very narrow lens: will the unrest in Afghanistan affect the U.S. economy?

Put another way, will the crisis deter people from traveling, delay a big purchase, or prevent someone from dining at a restaurant? The short answer: very doubtful.

We have seen hourly and day-to-day volatility, which is common during any bull market cycle. But investors don’t see an impact on U.S. economic growth over the next six to nine months from a Taliban takeover and possible civil war. By month’s end, major market indexes were just off all-time highs.

The economy, Covid, and stocks

Let’s review three broad-based indicators.

Weekly first-time claims for unemployment benefits measure the number of individuals each week who make their first-time application for benefits following a layoff.

When business activity is slowing, we’d expect layoffs to rise, as falling sales and falling profits encourage business owners to cut staff. Conversely, if business activity is picking up, we’d expect layoffs to decline, since most businesses would be more reluctant to lose employees.

Today, we have yet to see an upturn in layoffs (Figure 1), suggesting economic growth isn’t being significantly affected by the rise in Covid cases.

The second indicator offers a unique peek at how individuals and families view Covid.

Lockdowns and social distancing restrictions have had a big impact on restaurants and bars. Note the sharp decline in early 2020, when the pandemic began, and late 2020, when cases accelerated in the fall (Figure 2)

Through August, sales at restaurants and bars have gained ground for five-consecutive months, including a strong 1.7% rise in August. If people are concerned, they are not avoiding crowded restaurants.

Let’s briefly review one more report, the Leading Index from the Conference Board. The Leading Index consists of 10 economic indicators that tend to signal future economic activity.

The index rose a strong 0.9% in July, which follows a 0.5% rise in June and a 1.2% rise in May. July’s reading was a fresh all-time high, signaling that solid economic growth is expected to continue in the near term.

As we enter September, investors will consider whether lofty valuations can hold up to the unwinding of fiscal stimulus and the potential for a reduction in Federal Reserve bond buys later in the year. A pullback is inevitable. For now, powerful tailwinds have been supportive.

If you have any questions or want to discuss any other matters, please feel free to reach out to your advisor.

¹ The Dow Jones Industrials Average is an unmanaged index of 30 major companies which cannot be invested into directly. Past performance does not guarantee future results.

² The NASDAQ Composite is an unmanaged index of companies which cannot be invested into directly. Past performance does not guarantee future results.

³ The S&P 500 Index is an unmanaged index of 500 larger companies which cannot be invested into directly. Past performance does not guarantee future results.

⁴ The Global Dow is an unmanaged index composed of stocks of 150 top companies. It cannot be invested into directly. Past performance does not guarantee future results.

⁵ CME Group front-month contract; Prices can and do vary; past performance does not guarantee future results.

⁶ CME Group continuous contract; Prices can and do vary; past performance does not guarantee future results.

It is important that you do not use this e-mail to request or authorize the purchase or sale of any security or commodity, or to request any other transactions. Any such request, orders or instructions will not be accepted and will not be processed.

All items discussed in this report are for informational purposes only, are not advice of any kind, and are not intended as a solicitation to buy, hold, or sell any securities. Nothing contained herein constitutes tax, legal, insurance, or investment advice. Please consult the appropriate professional regarding your individual circumstance.

Stocks and bonds and commodities are not FDIC insured and can fall in value, and any investment information, securities and commodities mentioned in this report may not be suitable for everyone.

U.S. Treasury bonds and Treasury bills are guaranteed by the U.S. government and, if held to maturity, offer a fixed rate of return and guaranteed principal value. U.S. government bonds are issued and guaranteed as to the timely payment of principal and interest by the federal government. Treasury bills are certificates reflecting short-term (less than one year) obligations of the U.S. government.

Past performance is not a guarantee of future results.

Different investments involve different degrees of risk, and there can be no assurance that the future performance of any investment, security, commodity or investment strategy that is referenced will be profitable or be suitable for your portfolio.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material.

The information contained is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.

Before making any investments or making any type of investment decision, please consult with your financial advisor and determine how a security may fit into your investment portfolio, how a decision may affect your financial position and how it may impact your financial goals.

All opinions are subject to change without notice in response to changing market and/or economic conditions.

Copyright © 2021
Everspire
All rights reserved

Last Year’s Stock Market Rally Extends into 2021

Last year’s stock market rally was an explosive recovery that saw the major market averages set new highs. We’re well into 2021, and the major market averages have continued to push to new heights.

Figure 1 highlights the six longest running bull markets since WWII and compares them to the performance of the current bull run. Through the end of July, the current bull market, as measured by the broad-based S&P 500 Index3, takes the top spot. It exceeds the early performance of the long-running bull market that was born out of the 2008 financial crisis.

 

Before we get carried away and extrapolate today’s upward move, let’s also point out that the nearly 10-year bull market of the 1990s got off the ground slowly. In other words, let’s state something we already know, but bears repeating. Past performance is not a guarantee of future performance.

 

A review of the major themes driving stocks

If we step back and look at what is driving stocks, we can’t credit just one variable. Instead, several tailwinds have been responsible for the strong rally. These include:

1. The Fed has provided super easy money. Interest rates are extremely low, which encourages investors to seek out stocks for more acceptable returns. The Fed has also been buying about $120 billion in bonds each month, which pumps additional cash into the financial system.
2. The strong economic recovery has been a tailwind. It’s expensive, and it raises the federal deficit, but strong fiscal stimulus puts cash into the hands of consumers, which helps drive economic activity.The U.S. BEA reported that Gross Domestic Product (GDP), the largest measure of goods and services, expanded at an annual pace of 6.5% in Q2, up from 6.3% in Q1. Consumer spending was an important component in the robust reports.In addition, the vaccines have accelerated the reopening. Notably, spending in Q2 was strong for service-related businesses tied to activities outside the home. The U.S. BEA reported that Gross Domestic Product (GDP), the largest measure of goods and services, expanded at an annual pace of 6.5% in Q2, up from 6.3% in Q1. Consumer spending was an important component in the robust reports.In addition, the vaccines have accelerated the reopening. Notably, spending in Q2 was strong for service-related businesses tied to activities outside the home.
3. Plus, the strong economic recovery has led to huge gains in corporate profits, which have far exceeded analyst forecasts in recent quarters, according to Refinitiv. As economic growth seems set to moderate in the third quarter, we’ll likely see profit growth moderate. However, analysts surveyed by Refinitiv continue to boost earnings forecasts in Q3 and Q4, which lends support to equities.

Looking at it as an equation, low interest rates + strong corporate profits tied to upbeat economic growth have led to a series of new highs in the major market indexes.

Yet, markets are never without risk. While there have been no major recent corrections, the risk we might see some type of pullback later in the year can’t be dismissed.

Economic growth is expected to continue this year, barring a sharp uptick in new Covid cases and related restrictions, which could create stock market volatility.

Inflation has been much higher than the Federal Reserve and many analysts had expected. If the surge in inflation isn’t temporary and proves to be more persistent than expected, we could see the Fed hit the monetary brakes faster than most anticipate.

For now, the Fed’s own projections released in June suggest the central bank may be penciling in two small rate hikes in 2023. Even if that occurs, rates would remain low by historical standards.

Long-term perspective

Except for the 1987 stock market crash, bear markets (a 20% or greater decline in the S&P 500 Index), have been centered around recessions, according to S&P 500 data from the St. Louis Federal Reserve and Yahoo Finance. That streak has been in place since the mid-1960s.

Still, while long-term financial plans don’t eliminate risk, they help manage risk and take market volatility into account.

Following the big gains in stocks, it’s important to add that the investment plan is also designed to keep investors from taking on too much risk, when big market gains sometimes encourage individuals to dive too heavily into stocks.

If you have any questions or want to discuss any other matters, please feel free to reach out to your advisor.

¹ The Dow Jones Industrials Average is an unmanaged index of 30 major companies which cannot be invested into directly. Past performance does not guarantee future results.

² The NASDAQ Composite is an unmanaged index of companies which cannot be invested into directly. Past performance does not guarantee future results.

³ The S&P 500 Index is an unmanaged index of 500 larger companies which cannot be invested into directly. Past performance does not guarantee future results.

⁴ The Global Dow is an unmanaged index composed of stocks of 150 top companies. It cannot be invested into directly. Past performance does not guarantee future results.

⁵ CME Group front-month contract; Prices can and do vary; past performance does not guarantee future results.

⁶ CME Group continuous contract; Prices can and do vary; past performance does not guarantee future results.

It is important that you do not use this e-mail to request or authorize the purchase or sale of any security or commodity, or to request any other transactions. Any such request, orders or instructions will not be accepted and will not be processed.

All items discussed in this report are for informational purposes only, are not advice of any kind, and are not intended as a solicitation to buy, hold, or sell any securities. Nothing contained herein constitutes tax, legal, insurance, or investment advice. Please consult the appropriate professional regarding your individual circumstance.

Stocks and bonds and commodities are not FDIC insured and can fall in value, and any investment information, securities and commodities mentioned in this report may not be suitable for everyone.

U.S. Treasury bonds and Treasury bills are guaranteed by the U.S. government and, if held to maturity, offer a fixed rate of return and guaranteed principal value. U.S. government bonds are issued and guaranteed as to the timely payment of principal and interest by the federal government. Treasury bills are certificates reflecting short-term (less than one year) obligations of the U.S. government.

Past performance is not a guarantee of future results.

Different investments involve different degrees of risk, and there can be no assurance that the future performance of any investment, security, commodity or investment strategy that is referenced will be profitable or be suitable for your portfolio.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material.

The information contained is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.

Before making any investments or making any type of investment decision, please consult with your financial advisor and determine how a security may fit into your investment portfolio, how a decision may affect your financial position and how it may impact your financial goals.

All opinions are subject to change without notice in response to changing market and/or economic conditions.

Copyright © 2021
Everspire
All rights reserved

House Price Explosion

The pandemic has created long-lasting distortions in the economy. Fiscal stimulus checks and generous jobless benefits have left many folks with extra cash. We have seen that play out in strong sales for home improvement and autos.

While distancing restrictions that had been in place have the travel industry, that may change amid pent-up demand and falling Covid cases. A shortage of rental cars has sent prices into the stratosphere in some locales.

 

One industry that has been met with unexpected demand is housing. Surging sales and the lack of supply have created bidding wars around the nation.

According to the National Home Price Index, prices are at a record level(blue line)—Figure 1. In addition, the acceleration in prices, which began in the middle of 2020, is up at the fastest pace on record (red line). The survey began in 1987.

In another survey, the National Association of Realtors said that the median price of an existing home hit a record $350,300 in May, up 23.6%from May 2020. The median price of a new home in May is up 18% versus
one year ago to a record $374,400, according to the U.S. Census.

Yet, as any realtor will tell you, the three most important things in real estate are location, location, location. What is happening in one neighborhood may not be mirrored in another, but nationally prices have soared amid a shortage of inventory.

Making sense out of the madness

Rising prices can’t be pinned on one thing. There is plenty going on including:

1. Mortgage rates fell to record lows. The 30-year fixed mortgage fell below 3% last July, according to Freddie Mac’s weekly survey. It held below 3% until March and has hovered near that mark since.
2. The pandemic discouraged potential buyers from listing homes last year. As a result, inventories fell sharply, limiting choices for buyers at a time low mortgage rates were encouraging fence sitters to start looking.
3. New home builders were caught flat-footed by surging demand and have struggled to catch up. Moreover, soaring lumber prices have caused added delays. Notably, the price of lumber fell sharply in June but remains about double the pre-pandemic price (CNBC).
4. The Wall Street Journal reported in April that the pandemic set in motion a furious scramble to buy vacation homes. In January 2020, 9% of mortgage applications came from investors and those wanting a second home. That rose to 14% last February.
5. On a related note, investors chasing yield have snapped up houses renting them and nibbling away at supply. These investors aren’t simply mom and pop landlords. The Wall Street Journal said pension funds are also buying homes they plan to rent.
6. Mortgage forbearance has helped keep people in their home, pre-venting a flood of foreclosures.
7. Potential sellers who want to move fear a quick house sale could leave them without a home to buy; therefore, they choose to stay put, further limiting the supply of houses.

Surging prices bring up the next question: are we in a bubble as we were in the 2000s?

We are seeing sales come off the early 2021 peak simply because high prices are discouraging some buyers. But limited inventories seem likely to support prices in the short term, even if today’s outsized gains are unsustainable.

Still, unlike the bubble during the 2000s, we aren’t seeing a building boom with large numbers of speculators chasing up prices. Just the opposite, there are not enough homes to satisfy demand.

Moody’s Analytics noted last month, “Stress lines are developing as…house prices have substantially outstripped household incomes, effective rents, and construction costs.”

But Moody’s added, “A bubble develops when there is speculation, or when buyers are purchasing homes with the intent of selling quickly for a profit. This isn’t what is happening in today’s housing market,” as house flipping remains low.

 

Nonetheless, the bubble question is tough to answer simply because forecasting the future involves inputting unknown future variables into an imperfect forecasting model.

The table of returns highlights the major market averages added to gains in Q2, as strong economic growth, strong profit growth, low interest rates, Fed bond buys, falling daily Covid cases, and the reopening of the economy aid stocks.

Notably, long-term Treasury yields fell in Q2, which suggests that investors may be accepting the Fed’s line that the recent burst in inflation is temporary. It could also suggest that economic growth is set to peak inQ2, as fiscal stimulus wanes.

If you have any questions or want to discuss any other matters, please feel free to reach out to your advisor.

¹ The Dow Jones Industrials Average is an unmanaged index of 30 major companies which cannot be invested into directly. Past performance does not guarantee future results.

² The NASDAQ Composite is an unmanaged index of companies which cannot be invested into directly. Past performance does not guarantee future results.

³ The S&P 500 Index is an unmanaged index of 500 larger companies which cannot be invested into directly. Past performance does not guarantee future results.

⁴ The Global Dow is an unmanaged index composed of stocks of 150 top companies. It cannot be invested into directly. Past performance does not guarantee future results.

⁵ CME Group front-month contract; Prices can and do vary; past performance does not guarantee future results.

⁶ CME Group continuous contract; Prices can and do vary; past performance does not guarantee future results.

It is important that you do not use this e-mail to request or authorize the purchase or sale of any security or commodity, or to request any other transactions. Any such request, orders or instructions will not be accepted and will not be processed.

All items discussed in this report are for informational purposes only, are not advice of any kind, and are not intended as a solicitation to buy, hold, or sell any securities. Nothing contained herein constitutes tax, legal, insurance, or investment advice. Please consult the appropriate professional regarding your individual circumstance.

Stocks and bonds and commodities are not FDIC insured and can fall in value, and any investment information, securities and commodities mentioned in this report may not be suitable for everyone.

U.S. Treasury bonds and Treasury bills are guaranteed by the U.S. government and, if held to maturity, offer a fixed rate of return and guaranteed principal value. U.S. government bonds are issued and guaranteed as to the timely payment of principal and interest by the federal government. Treasury bills are certificates reflecting short-term (less than one year) obligations of the U.S. government.

Past performance is not a guarantee of future results.

Different investments involve different degrees of risk, and there can be no assurance that the future performance of any investment, security, commodity or investment strategy that is referenced will be profitable or be suitable for your portfolio.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material.

The information contained is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.

Before making any investments or making any type of investment decision, please consult with your financial advisor and determine how a security may fit into your investment portfolio, how a decision may affect your financial position and how it may impact your financial goals.

All opinions are subject to change without notice in response to changing market and/or economic conditions.

Copyright © 2021
Everspire
All rights reserved

A Four-Letter Word Called Inflation

Most have heard the question, “Is too much of a good thing, still a good thing?” Early in the year, Treasury bond yields were rising in reaction to congressional generosity. You know, trillions and trillions of dollars of stimulus cash being pumped into the economy.

The cash has aided the economic recovery, and stocks have reacted favorably. Today, however, too much money is generating a new concern: inflation.

 

The core Consumer Price Index (CPI), which excludes food and energy, rose at its fastest monthly pace in 40 years, up 0.9% in April see Figure 1. Add food and energy into the mix and the CPI increased a worrisome 0.8%.

What the consumer does is important because consumer outlays account for nearly 70% of GDP, according to U.S. Bureau of Economic Analysis (BEA) data.

Admittedly, inflation worries have popped up before. “Inflation Rears Its Ugly Head Once Again” was a March 2008 Wall Street Journal headline.

Today, economists are debating whether the recent flare-up is temporary and tied to the reopening of the economy and pent-up demand or something more ominous that would eventually force the Federal Reserve to jack up interest rates.

Fed officials have repeatedly insisted that today’s jump in prices is “transitory,” their preferred word of choice. What does transitory mean? It simply means temporary.

 

That may turn out to be the case, but let’s dig a little bit deeper.

Policymakers are finding out that it is easier to fuel the demand side of the economy (consumers and businesses buying goods) than get the productive side of the economy, which generates that supply of goods, back on its feet.

Using a very broad overview, Figure 2 helps explain what’s happening. The demand for goods has surged thanks largely to fiscal stimulus, but the production of goods has lagged badly.

Imports have made up some of the difference, hitting a record high in March per U.S. Census data. Still, a tight supply of some goods is pushing up prices. It’s the classic case of supply and demand as the economy reopens.

Recent headlines shine a light on the problem. A May 13^th story in the Wall Street Journal, “Empty Lots, Angry Customers: Semiconductor Crisis(Shortages) Throws Wrench into Car Business”, sums up what’s happening in the auto industry.

 

Or here is another look from a May 11^th CNBC feature: “U.S. Faces Major Shortages in Everything from Labor to Semiconductors, Lumber, and Packaging Material”.

Problems are especially acute in housing.

The National Association of Homebuilders said that lumber shortages are leading to skyrocketing lumber prices, adding an average of $36,000 to the cost of new home in one year.

Where might we be headed? Congress is debating infrastructure and big new spending bills. There is still plenty of fuel in the tank to support consumer spending, and the Fed insists its easy money policy won’t be changed anytime soon.

Further, it is unknown when supply-side bottlenecks might clear or whether labor shortages may fuel wage increases that get tacked on to retail prices.

Yet, disinflationary demographic trends that predate the Covid crisis remain in place. The same could be said of globalization, though less so than in recent years. Plus, labor unions no longer have the power to exact inflationary wage hikes as they did in the 1970s.

Besides, a burdensome rise in inflation would probably be met by a quicker response from the Fed than what we saw a generation ago.

Inflation is not a four-letter word, but it might as well be. A repeat of the1970s is an unwanted outcome. However, the low inflation of the last decade is unlikely to be matched over the medium term.

If you have any questions or want to discuss any other matters, please feel free to reach out to your advisor.

¹ The Dow Jones Industrials Average is an unmanaged index of 30 major companies which cannot be invested into directly. Past performance does not guarantee future results.

² The NASDAQ Composite is an unmanaged index of companies which cannot be invested into directly. Past performance does not guarantee future results.

³ The S&P 500 Index is an unmanaged index of 500 larger companies which cannot be invested into directly. Past performance does not guarantee future results.

⁴ The Global Dow is an unmanaged index composed of stocks of 150 top companies. It cannot be invested into directly. Past performance does not guarantee future results.

⁵ CME Group front-month contract; Prices can and do vary; past performance does not guarantee future results.

⁶ CME Group continuous contract; Prices can and do vary; past performance does not guarantee future results.

It is important that you do not use this e-mail to request or authorize the purchase or sale of any security or commodity, or to request any other transactions. Any such request, orders or instructions will not be accepted and will not be processed.

All items discussed in this report are for informational purposes only, are not advice of any kind, and are not intended as a solicitation to buy, hold, or sell any securities. Nothing contained herein constitutes tax, legal, insurance, or investment advice. Please consult the appropriate professional regarding your individual circumstance.

Stocks and bonds and commodities are not FDIC insured and can fall in value, and any investment information, securities and commodities mentioned in this report may not be suitable for everyone.

U.S. Treasury bonds and Treasury bills are guaranteed by the U.S. government and, if held to maturity, offer a fixed rate of return and guaranteed principal value. U.S. government bonds are issued and guaranteed as to the timely payment of principal and interest by the federal government. Treasury bills are certificates reflecting short-term (less than one year) obligations of the U.S. government.

Past performance is not a guarantee of future results.

Different investments involve different degrees of risk, and there can be no assurance that the future performance of any investment, security, commodity or investment strategy that is referenced will be profitable or be suitable for your portfolio.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material.

The information contained is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.

Before making any investments or making any type of investment decision, please consult with your financial advisor and determine how a security may fit into your investment portfolio, how a decision may affect your financial position and how it may impact your financial goals.

All opinions are subject to change without notice in response to changing market and/or economic conditions.

Copyright © 2021
Everspire
All rights reserved

A Robust Economic Rebound

It’s been one year since the Covid pandemic pushed the economy off a cliff. Fast forward to today. What a difference a year makes. The economy has roared back. Some sectors have benefited enormously, while others have lagged.

Gross Domestic Product (GDP), which is the largest gauge of goods and services in the economy, slowed in Q4 from Q3’s record annualized pace of 33.4%, but it accelerated in Q1 to a 6.4% annualized pace—see Figure 1.

Successful rollout of the vaccines, fewer restrictions on businesses, and stimulus money contributed to Q1’s upbeat pace. Breaking down some of the numbers, consumer spending jumped 10.7% in Q1 versus a more subdued 2.3% in the final quarter of last year.

What the consumer does is important because consumer outlays account for nearly 70% of GDP, according to U.S. Bureau of Economic Analysis (BEA) data.

However, consumer outlays have been distorted by the pandemic, as Figure 2 illustrates.

Spending on durable goods, which is generally defined as purchases designed to last at least three years, such as autos or home appliances, surged in Q1. Big-ticket items have benefited enormously from stimulus checks.

Yet, services continue to lag. Note the steep decline in Q2 2020 for services amid widespread restrictions on sectors that rely heavily on person-to-person interactions. The cash was available, but the transmission mechanism between consumers and business was blocked.

Where might we be headed? Economic forecasting is inexact. While the strong stock market rally indicates investors sniffed out the economic rebound over the last year, most forecasters were far more pessimistic.

A resurgence in the virus could put a damper on the rest of the year, but “excess savings” may be set to drive activity for much of 2021. It’s one reason investors have pushed the major stock market averages higher.

 

Moody’s Analytics defines excess saving as savings “above what households would have saved if the pandemic had not occurred, and their savings behavior had been the same as in 2019.”

In other words, it’s the extra cash that was squirreled away as we curtailed spending amid lockdowns and social distancing restrictions on various businesses.

As of the first quarter of 2021, Moody’s estimates that excess savings around the world is over 6% of global GDP. The U.S. has the world’s highest rate of excess savings, equal to 12% of GDP, or $2.6 trillion. Stimulus checks, paycheck protection loans, and very generous jobless benefits have all contributed to the stockpiling of cash.

We see it in the elevated savings rate—see Figure 3.

Might the savings rate eventually settle at an elevated rate? It’s possible, but it’s cash that seems set to power growth as the economy reopens.

If you have any questions or want to discuss any other matters, please feel free to reach out to your advisor.

¹ The Dow Jones Industrials Average is an unmanaged index of 30 major companies which cannot be invested into directly. Past performance does not guarantee future results.

² The NASDAQ Composite is an unmanaged index of companies which cannot be invested into directly. Past performance does not guarantee future results.

³ The S&P 500 Index is an unmanaged index of 500 larger companies which cannot be invested into directly. Past performance does not guarantee future results.

⁴ The Global Dow is an unmanaged index composed of stocks of 150 top companies. It cannot be invested into directly. Past performance does not guarantee future results.

⁵ CME Group front-month contract; Prices can and do vary; past performance does not guarantee future results.

⁶ CME Group continuous contract; Prices can and do vary; past performance does not guarantee future results.

It is important that you do not use this e-mail to request or authorize the purchase or sale of any security or commodity, or to request any other transactions. Any such request, orders or instructions will not be accepted and will not be processed.

All items discussed in this report are for informational purposes only, are not advice of any kind, and are not intended as a solicitation to buy, hold, or sell any securities. Nothing contained herein constitutes tax, legal, insurance, or investment advice. Please consult the appropriate professional regarding your individual circumstance.

Stocks and bonds and commodities are not FDIC insured and can fall in value, and any investment information, securities and commodities mentioned in this report may not be suitable for everyone.

U.S. Treasury bonds and Treasury bills are guaranteed by the U.S. government and, if held to maturity, offer a fixed rate of return and guaranteed principal value. U.S. government bonds are issued and guaranteed as to the timely payment of principal and interest by the federal government. Treasury bills are certificates reflecting short-term (less than one year) obligations of the U.S. government.

Past performance is not a guarantee of future results.

Different investments involve different degrees of risk, and there can be no assurance that the future performance of any investment, security, commodity or investment strategy that is referenced will be profitable or be suitable for your portfolio.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material.

The information contained is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.

Before making any investments or making any type of investment decision, please consult with your financial advisor and determine how a security may fit into your investment portfolio, how a decision may affect your financial position and how it may impact your financial goals.

All opinions are subject to change without notice in response to changing market and/or economic conditions.

Copyright © 2021
Everspire
All rights reserved

Looking Back—One Year Later

It has been one year since the World Health Organization declared the Covid outbreak a pandemic. If we travel back to March 2020, we were bracing for lockdowns, shelter-in-place restrictions, and traveling to the grocery store to stock up on staples.

 

The jolt to the economy and fear of Covid led to the steepest downturn in economic activity that’s ever been recorded. The lion’s share of the damage occurring in Q2, which saw a record 31.4% annualized drop in GDP (U.S. BEA—quarterly records date back to 1947).

Meanwhile, the S&P 500 Index lost 34% of its value in a little over one month, according to S&P 500 data from the St. Louis Federal Reserve.

With uncharacteristic speed, the Federal Reserve jumped into action, announcing a host of new programs. Its response went well beyond the 2008 financial crisis.

The Federal government quickly passed the $2.2 trillion CARES Act, which provided generous jobless benefits, stimulus checks, paycheck protection loans, and more.

Investors reacted to the generosity and anticipated a robust economic recovery. By the end of August, the S&P 500 Index surpassed its February high (St. Louis Federal Reserve data).

In Q3, GDP rose a record 33.4%. A new relief package was passed at the end of December, and a much costlier bill, the American Rescue Plan Act, was signed into law last month. While the $1.9 trillion bill price tag has led to criticism, it will send a tsunami of money into the economy.

 

Nonetheless, the pandemic has created economic distortions that have yet to dissipate. The trend towards online buying has accelerated, and big box retailers that were deemed essential have excelled.

Though we are seeing progress, some service-related industries have struggled to adapt to the new normal and remain well below pre-pandemic output.

Government support and U.S. economic resilience

The rollout of the vaccines, trillions of dollars being injected into the economy, and very low interest rates have supported economic grow hand helped fuel the stock market rally over the last year.

Since bottoming on March 23, 2020, the S&P 500 Index has gained an astounding 77.58% through March 31, 2021. Figure 2 highlights the performance of the longest running bull markets since WWII.

After one year, today’s bull market is just ahead of the one-year performance of the last bull run, which began in March 2009. But it’s important to point out that a fast start is not always indicative of future performance.

The long-running bull market of the 1990s was ranked last after the first year.

 

Where are we headed from here? Much will depend on the economy, corporate profits, Federal Reserve policy, bond yields, and inflation. They have historically been the key drivers of stocks.

The Fed raised its outlook in March, boosting its 2021 GDP forecast from December’s estimate of 4.2% to a fast-paced 6.5%. The rollout of the vaccines and new government money are largely responsible for the outlook, though I must caution, as most economists missed the strong rebound, forecasts are simply educated estimates.

Still, the economic outlook is favorable based on today’s information.

Reviewing second-year S&P 500 performance from bull markets that were born out of a bear market that registered at least a 30% decline: +17%average return in the second year, including a 10% peak-to-trough decline(LPL Research; past performance is no guarantee of future results).

While the fundamentals have been favorable, never rule out the possibility of volatility.

If you have any questions or want to discuss any other matters, please let us know.

¹ The Dow Jones Industrials Average is an unmanaged index of 30 major companies which cannot be invested into directly. Past performance does not guarantee future results.

² The NASDAQ Composite is an unmanaged index of companies which cannot be invested into directly. Past performance does not guarantee future results.

³ The S&P 500 Index is an unmanaged index of 500 larger companies which cannot be invested into directly. Past performance does not guarantee future results.

⁴ The Global Dow is an unmanaged index composed of stocks of 150 top companies. It cannot be invested into directly. Past performance does not guarantee future results.

⁵ CME Group front-month contract; Prices can and do vary; past performance does not guarantee future results.

⁶ CME Group continuous contract; Prices can and do vary; past performance does not guarantee future results.

It is important that you do not use this e-mail to request or authorize the purchase or sale of any security or commodity, or to request any other transactions. Any such request, orders or instructions will not be accepted and will not be processed.

All items discussed in this report are for informational purposes only, are not advice of any kind, and are not intended as a solicitation to buy, hold, or sell any securities. Nothing contained herein constitutes tax, legal, insurance, or investment advice. Please consult the appropriate professional regarding your individual circumstance.

Stocks and bonds and commodities are not FDIC insured and can fall in value, and any investment information, securities and commodities mentioned in this report may not be suitable for everyone.

U.S. Treasury bonds and Treasury bills are guaranteed by the U.S. government and, if held to maturity, offer a fixed rate of return and guaranteed principal value. U.S. government bonds are issued and guaranteed as to the timely payment of principal and interest by the federal government. Treasury bills are certificates reflecting short-term (less than one year) obligations of the U.S. government.

Past performance is not a guarantee of future results.

Different investments involve different degrees of risk, and there can be no assurance that the future performance of any investment, security, commodity or investment strategy that is referenced will be profitable or be suitable for your portfolio.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material.

The information contained is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.

Before making any investments or making any type of investment decision, please consult with your financial advisor and determine how a security may fit into your investment portfolio, how a decision may affect your financial position and how it may impact your financial goals.

All opinions are subject to change without notice in response to changing market and/or economic conditions.

Copyright © 2021
Everspire
All rights reserved

Too Much of a Good Thing? Treasury Yields Rise

The Federal Reserve is in no mood to raise interest rates. The Fed’s Summary of Economic Projections suggests that its key short-term lending rate, the fed funds rate, could remain near zero through the end of 2023.

The Fed is not worried about inflation and continues to use a wide array of tools, including bond buys and low rates, to encourage economic growth and get people back to work.

Moreover, Congress is intent on passing another large relief package that will include putting more money into the hands of consumers and the unemployed via stimulus checks and an extension of generous unemployment benefits.

Is too much of a good thing a good thing?

Twentieth century film star Mae West playfully remarked, “Too much of a good thing can be wonderful.” But is it?

Interest rates are low, the economy is growing, and there is plenty of cash in the financial system. Further, Congress appears ready to pass another big package.

 

The combination has supported the economy and helped fuel gains in the stock market. However, Treasury bond yields are beginning to react. Since the Fed is pledging to keep rates low, why are longer-term Treasury yields moving higher as illustrated in Figure 1?

First, the Fed can control short-term rates, but can only hope to influence longer-term yields through commentary by Fed officials and its own guidance. But other factors play a role in long-term yields, too.

For starters,

• While uncertainty persists, sentiment suggests that U.S. economic growth will accelerate this year, which reduces the attractiveness of safer Treasury bonds (Treasury yields and bond prices move in the opposite direction). The average 2021 forecast for Gross Domestic Product per a survey of economists by Moody’s Analytics is 6.1%.
• Investors are beginning to fear that too much fiscal stimulus could push inflation higher, which reduces the appeal of fixed income investments. Money supply growth of 25% last year is the fastest in over 60 years (St. Louis Federal Reserve). It is also raising inflation concerns. It would be the classic case of too much money chasing too few goods.
• The Fed’s insistence that it will keep short-term interest rates low for a long period may also be lifting inflation fears amid worries the economy could overheat and push up prices.

One gauge investors use to measure inflation expectations is the 10-Year Breakeven Rate, which provides an estimate as to the level of annual inflation investors expect over the next 10 years.

While the rate of inflation probably has an upward bias this year, that doesn’t mean an unwanted rise in prices is on the horizon. Besides, accurately forecasting inflation over the long term is dicey at best since the inflation-forecasting equation has many moving parts.

Bottom line
Yields on corporate bonds have risen at a more modest pace so far. And both corporate and Treasury yields remain at a historically low level.

In some respects, the rise in Treasury yields is a sign of confidence in the economic outlook. But investors are also trying to discount an uptick in inflation amid a very easy monetary policy and very generous government stimulus.

Moreover, Congress is intent on passing another large relief package that will include putting more money into the hands of consumers and the unemployed via stimulus checks and an extension of generous unemployment benefits.

¹ The Dow Jones Industrials Average is an unmanaged index of 30 major companies which cannot be invested into directly. Past performance does not guarantee future results.

² The NASDAQ Composite is an unmanaged index of companies which cannot be invested into directly. Past performance does not guarantee future results.

³ The S&P 500 Index is an unmanaged index of 500 larger companies which cannot be invested into directly. Past performance does not guarantee future results.

⁴ The Global Dow is an unmanaged index composed of stocks of 150 top companies. It cannot be invested into directly. Past performance does not guarantee future results.

⁵ CME Group front-month contract; Prices can and do vary; past performance does not guarantee future results.

⁶ CME Group continuous contract; Prices can and do vary; past performance does not guarantee future results.

It is important that you do not use this e-mail to request or authorize the purchase or sale of any security or commodity, or to request any other transactions. Any such request, orders or instructions will not be accepted and will not be processed.

All items discussed in this report are for informational purposes only, are not advice of any kind, and are not intended as a solicitation to buy, hold, or sell any securities. Nothing contained herein constitutes tax, legal, insurance, or investment advice. Please consult the appropriate professional regarding your individual circumstance.

Stocks and bonds and commodities are not FDIC insured and can fall in value, and any investment information, securities and commodities mentioned in this report may not be suitable for everyone.

U.S. Treasury bonds and Treasury bills are guaranteed by the U.S. government and, if held to maturity, offer a fixed rate of return and guaranteed principal value. U.S. government bonds are issued and guaranteed as to the timely payment of principal and interest by the federal government. Treasury bills are certificates reflecting short-term (less than one year) obligations of the U.S. government.

Past performance is not a guarantee of future results.

Different investments involve different degrees of risk, and there can be no assurance that the future performance of any investment, security, commodity or investment strategy that is referenced will be profitable or be suitable for your portfolio.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material.

The information contained is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.

Before making any investments or making any type of investment decision, please consult with your financial advisor and determine how a security may fit into your investment portfolio, how a decision may affect your financial position and how it may impact your financial goals.

All opinions are subject to change without notice in response to changing market and/or economic conditions.

Copyright © 2021
Everspire
All rights reserved

Drama on Wall Street

The major market indexes have had a very strong run since bottoming last March. We saw some uncertainty early in the fall heading into the election, but the bitter contest is over. With the announcement of vaccines and new fiscal stimulus, stocks roared to new highs.

Moreover, low interest rates, monthly Federal Reserve bond buys, better-than-expected corporate profits, and a growing economy have added to favorable sentiment.

Yet, euphoria can sometimes breed too much euphoria, which can create conditions that can lead to unexpected volatility.

Revenge of the nerds

Last week, a few stocks that had been heavily shorted by hedge funds (shorting is a risky way to profit if a stock falls in price), soared in price as young speculators used social media chat rooms to encourage purchases and snare professionals in a money-losing trap. It’s a populist and profit motive for these chatroom traders.

The stock that received the most attention was GameStop (GME), a struggling video game retailer that’s been heavily shorted (CNBC, MarketWatch) by the professionals. GameStop was selling below $20 per share in early January but peaked at over $480 on January 28, according to price data from Yahoo Finance. GameStop closed at $325 on January 29.

Why have a few names created volatility? There are fears that hedge funds being squeezed might be forced to sell other stocks and raise cash.

Fed Chief Jerome Powell was asked about market action at last week’s press conference, which followed the first Fed meeting of the year.

Powell declined to comment on specific firms, but opined that recent fiscal policy and vaccines were responsible for market gains since November, not easy Fed policy, i.e., low interest rates.

Low rates and Fed bond buys, economic growth, better-than-expected corporate profits, fiscal stimulus, and the new vaccines have all fueled the rally. Mix in social media, an Internet-driven insurgency, and zero-commission trading, and unexpected volatility surfaced last week.

Volatility can happen for any number of reasons. A 10% market correction can never be ruled out. Still, the economic fundamentals that lifted stocks over the last year remain in place.

How might the drama end?

Most professionals believe it will end when most short sellers have given up and have closed out their positions, or regulators or brokers intervene. At that point, we could see a sharp selloff in GameStop and other companies hyped by the chatroom crowd. But might young traders target new, heavily shorted stocks? Might this turn into a new phenomenon we must adapt to?

Longer term, economic fundamentals and economic activity determine stock prices.

As billionaire investor Leon Cooperman said on CNBC late last month, “At the end of the day, the stock market reflects economic progress or the lack thereof. Water seeks its own level.”

Growth moderates in the fourth quarter

The U.S. BEA reported that Gross Domestic Product, which is the largest measure of economic output, slowed from Q3’s record annualized pace of 33.4% to 4.0% in Q4—see Figure 1.

Historically, 4% is solid, but we saw a significant moderation in consumer spending, as the surge in new U.S. Covid cases late last year played a big role in restricting activity. Business investment and housing, however, helped drive overall growth.

In December, nonfarm payrolls fell by 140,000. This included a loss of 372,000 jobs in the restaurant industry, according to the U.S. Bureau of Labor Statistics.

In other words, one industry more than offset job gains in the rest of the economy.

Various surveys of manufacturing and the broad-based service sector suggest that economic growth sped up in January. In particular, Markit Economics, which surveys the economic landscape, said U.S. manufacturing in January accelerated at its fastest pace since it began publishing its index.

Rising Covid cases late last year have hampered overall growth. While new cases have slowed per Johns Hopkins data, they remain elevated. And the risk from new strains is adding to uncertainty.

However, fiscal stimulus is in the pipeline, additional government stimulus is on the table, and a high savings rate seem set to send a mountain of cash into the economy this year.

Ultimately, the rollout and success of the new vaccines will play an important role in driving economic confidence in the months ahead.

One final note on last week’s action: When volatility strikes, even seasoned investors sometimes consider changes to well-diversified financial plans. Over the longer term, relying on time-tested investment principles and avoiding decisions based on short-term market gyrations have historically led to the best outcome.

If you have any questions or want to discuss any other matters, please feel free to reach out to your advisor.

¹ The Dow Jones Industrials Average is an unmanaged index of 30 major companies which cannot be invested into directly. Past performance does not guarantee future results.

² The NASDAQ Composite is an unmanaged index of companies which cannot be invested into directly. Past performance does not guarantee future results.

³ The S&P 500 Index is an unmanaged index of 500 larger companies which cannot be invested into directly. Past performance does not guarantee future results.

⁴ The Global Dow is an unmanaged index composed of stocks of 150 top companies. It cannot be invested into directly. Past performance does not guarantee future results.

⁵ CME Group front-month contract; Prices can and do vary; past performance does not guarantee future results.

⁶ CME Group continuous contract; Prices can and do vary; past performance does not guarantee future results.

It is important that you do not use this e-mail to request or authorize the purchase or sale of any security or commodity, or to request any other transactions. Any such request, orders or instructions will not be accepted and will not be processed.

All items discussed in this report are for informational purposes only, are not advice of any kind, and are not intended as a solicitation to buy, hold, or sell any securities. Nothing contained herein constitutes tax, legal, insurance, or investment advice. Please consult the appropriate professional regarding your individual circumstance.

Stocks and bonds and commodities are not FDIC insured and can fall in value, and any investment information, securities and commodities mentioned in this report may not be suitable for everyone.

U.S. Treasury bonds and Treasury bills are guaranteed by the U.S. government and, if held to maturity, offer a fixed rate of return and guaranteed principal value. U.S. government bonds are issued and guaranteed as to the timely payment of principal and interest by the federal government. Treasury bills are certificates reflecting short-term (less than one year) obligations of the U.S. government.

Past performance is not a guarantee of future results.

Different investments involve different degrees of risk, and there can be no assurance that the future performance of any investment, security, commodity or investment strategy that is referenced will be profitable or be suitable for your portfolio.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material.

The information contained is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.

Before making any investments or making any type of investment decision, please consult with your financial advisor and determine how a security may fit into your investment portfolio, how a decision may affect your financial position and how it may impact your financial goals.

All opinions are subject to change without notice in response to changing market and/or economic conditions.

Copyright © 2021
Everspire
All rights reserved

Never Bet Against America

2020 tested America like no other year. It was as if the perfect storm made landfall and washed across the continent. The Covid pandemic, the shutdown of the economy, a presidential election, fires and hurricanes, and civil disobedience.

Yet, as the economy was near the bottom, investment legend Warren Buffett reiterated, “Never bet against America.” We won’t forget this year, but optimism is embedded in our DNA.

Let’s quickly look at some stats. The shuttering of the economy early in the year led to the steepest quarterly decline in U.S. Gross Domestic Product (GDP) on record, according to the U.S. BEA. Economic growth in the following quarter rebounded at the fastest pace on record.

Despite a vicious market selloff in March, stocks recovered and set new highs.

“For Many Big Businesses, 2020 Was a Surprisingly Good Year,” so said a December 18th story in the Wall Street Journal. We see it reflected in equities.

We counsel that market pullbacks are a natural part of the investing landscape, though we acknowledge that the 33.9% peak-to-trough decline in the S&P 500 occurred in only one month.

Yet, let’s take a moment to review Figure 2.

Since 1980, the average annual intra-year pullback in the S&P 500 has been 14.2%; yet, the S&P 500 has averaged a 13% advance each year (including dividends).

Here are some additional data points. From 1980 to 2020 (41 years), there have been:

• 7 down years, with the average decline during a down year of  13.1%
• 34 up years, with the average increase during an up year of +18.4%
  The only time we’ve had back-to-back declines was 2000-2002 (stock bubble bursting).
• 21 out of 41 years, we’ve had pullbacks of 10% or more, or an average of every 1.95 years.
• 6 of the 41 years saw pullbacks of 20% or more, or an average of every 6.83 years.

Figure 2 illustrates the long-term upward bias in stocks.

Changes in sentiment can force stocks lower over shorter periods, but favorable economic fundamentals have helped fuel longer-term gains.

A review

The economic shutdown triggered the first bear market since the 2008 financial crisis. But there were two important catalysts that helped fuel the subsequent rally.

First, the Federal Reserve went far beyond measures announced during 2008. Second, Congress passed the $2 trillion CARES Act, which provided generous benefits for the unemployed, while aiding households, and small and larger businesses.

The CARES Act and the Fed couldn’t prevent the worst quarterly decline in GDP we’ve ever experienced, but it helped set the stage for a sharp economic rebound in Q3.

Record low interest rates, coupled with economic growth, played a big role in the market’s rally.

Still, the pandemic created distortions in behavior. Technology performed admirably, and you see it reflected in the outperformance of the tech-heavy Nasdaq.

Autos, home improvement, online retailers, streaming services, housing, and big box retailers deemed to be essential did very well during the pandemic.

However, oil and gas, mom and pop outfits, and traditional department stores suffered.

The same could be said of businesses that rely on person-to-person interactions, including movie theaters, sporting events, restaurants, concerts, air travel, and hotels.

It has been the tale of two economies.

A look ahead

While cautious optimism prevails, the path of the economy is likely to depend on the course of the virus. The likelihood that vaccines will be widely available by June could provide a significant boost to sectors hit hard by social distancing. But distribution of the vaccines must accelerate soon.

Just as investors sniffed out the robust Q3 economic recovery, record highs in December suggest we’ll see further improvement next year, though expect the recovery to be uneven.

Of course, there are always risks.

The Fed is unlikely to lift short-term rates in the new year. But could investors be too complacent regarding bond yields, which many believe are expected to remain low in 2021?

Could inflation unexpectedly rise amid the heavy injections of fiscal stimulus and cash into the economy? And when stocks are priced for perfection, unexpected bad news can create volatility.

Investor’s corner

There are many factors outside of anyone’s control—particularly market forces. At Everspire we humbly acknowledge this reality and plan accordingly. Humility in this instance makes us stronger. We choose to have laser focus on the items within our control. Our devotion to financial planning has protected fortunes from being lost, turned lifelong dreams into realities, avoided postponing opportunities that may never have returned, and provided peace of mind in a world that can appear to be in complete disharmony.

We are forever grateful and humbled that you have entrusted Everspire with your confidence. We do not take your trust lightly and look forward to a prosperous 2021.

¹ The Dow Jones Industrials Average is an unmanaged index of 30 major companies which cannot be invested into directly. Past performance does not guarantee future results.

² The NASDAQ Composite is an unmanaged index of companies which cannot be invested into directly. Past performance does not guarantee future results.

³ The S&P 500 Index is an unmanaged index of 500 larger companies which cannot be invested into directly. Past performance does not guarantee future results.

⁴ The Global Dow is an unmanaged index composed of stocks of 150 top companies. It cannot be invested into directly. Past performance does not guarantee future results.

⁵ CME Group front-month contract; Prices can and do vary; past performance does not guarantee future results.

⁶ CME Group continuous contract; Prices can and do vary; past performance does not guarantee future results.

It is important that you do not use this e-mail to request or authorize the purchase or sale of any security or commodity, or to request any other transactions. Any such request, orders or instructions will not be accepted and will not be processed.

All items discussed in this report are for informational purposes only, are not advice of any kind, and are not intended as a solicitation to buy, hold, or sell any securities. Nothing contained herein constitutes tax, legal, insurance, or investment advice. Please consult the appropriate professional regarding your individual circumstance.

Stocks and bonds and commodities are not FDIC insured and can fall in value, and any investment information, securities and commodities mentioned in this report may not be suitable for everyone.

U.S. Treasury bonds and Treasury bills are guaranteed by the U.S. government and, if held to maturity, offer a fixed rate of return and guaranteed principal value. U.S. government bonds are issued and guaranteed as to the timely payment of principal and interest by the federal government. Treasury bills are certificates reflecting short-term (less than one year) obligations of the U.S. government.

Past performance is not a guarantee of future results.

Different investments involve different degrees of risk, and there can be no assurance that the future performance of any investment, security, commodity or investment strategy that is referenced will be profitable or be suitable for your portfolio.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material.

The information contained is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.

Before making any investments or making any type of investment decision, please consult with your financial advisor and determine how a security may fit into your investment portfolio, how a decision may affect your financial position and how it may impact your financial goals.

All opinions are subject to change without notice in response to changing market and/or economic conditions.

Copyright © 2020
Financial Jumble, LLC
Everspire
All rights reserved

An Election and Vaccines

A bitter election has ended. Some are jubilant, some are bitterly disappointed. Both candidates had avid followers, while others voted for what they might call “the lesser of two evils.”

As I’ve said in the past, I’m not a political pundit. My top priority is to be your financial advisor. Therefore, let’s cautiously review the recent contest through the eyes of a dispassionate investor who stays on the political sidelines.

Regardless of political preference, a big unknown has been removed. Ominous predictions of civil disruptions were not fulfilled and uncertainty has been replaced by a degree of certainty.

Figure 1 highlights S&P 500 Index3 performance broken down by the party that holds the White House and by Congressional makeup. For example, if Congress is divided and a Democrat is in the White House, the S&P 500 averaged a 15.9% annual return since 1950.

Note that markets have a long-term upward bias and typically move forward whether a Democrat or Republican has held the White House.

While two Georgia runoffs in January will determine which party captures the Senate, investors believe Republicans will probably prevail. This is being viewed favorably. Why? A united government under a Biden presidency would likely mean a big stimulus package, which would be viewed as a positive for investors. Yet, so far, a compromise on fiscal stimulus has been elusive, and investors have yet to express much displeasure.

On trade, it’s unlikely that we will fully return to pre-Trump policies, while a greater degree of stability and predictability on trade and tariffs is seen as beneficial to markets.

On taxes, investors have warmed to the prospect of gridlock and divided government, which would likely make passing significant tax increases and a big hike in the corporate tax rate more difficult.

Divided government would also reduce odds of more burdensome regulatory environment, though we may see new initiatives via executive orders.

Inoculating the economy

Stocks also received a strong jolt from the news that Pfizer (PFE $38) and Moderna (MRNA $152) have announced separate COVID-19 vaccines that are nearly 95% effective.

Dr. Scott Gottlieb, a former commissioner of the FDA and a member of Pfizer’s board of directors, said last month in a CNBC interview that with the vaccines “We could effectively end this pandemic in 2021.”

Despite the rise in Covid cases this fall and tighter restrictions around the nation, the major indexes had a stellar November, as investors looked past shorter-term challenges and focused instead on technological breakthroughs that may slow or end the pandemic.

Still, the short-term economic outlook is uncertain, and growth in economic activity has slowed from Q3’s record rebound. If a safe and effective vaccine encourages people to fly, enjoy vacations, return to restaurants, attend movies and theaters, and frequent sporting events, a significant roadblock to economic activity would be removed.

We have seen sharp increases in spending on goods and autos, according to U.S. Census data, but the same data also show that spending on businesses that require person-to-person interactions remains well below pre-Covid levels.

Stocks may still face bouts of volatility. With the major averages hitting new highs last month, any bit of disappointing news can encourage short-term traders to hit the sell button.

But tailwinds to stocks remain in place, including low interest rates, a very accommodative Federal Reserve, and the general belief that the economy will expand next year.

If you have any concerns, my door is always open. Please continue to adhere to social distancing and safety protocols, and please stay safe.

¹ The Dow Jones Industrials Average is an unmanaged index of 30 major companies which cannot be invested into directly. Past performance does not guarantee future results.

² The NASDAQ Composite is an unmanaged index of companies which cannot be invested into directly. Past performance does not guarantee future results.

³ The S&P 500 Index is an unmanaged index of 500 larger companies which cannot be invested into directly. Past performance does not guarantee future results.

⁴ The Global Dow is an unmanaged index composed of stocks of 150 top companies. It cannot be invested into directly. Past performance does not guarantee future results.

⁵ CME Group front-month contract; Prices can and do vary; past performance does not guarantee future results.

⁶ CME Group continuous contract; Prices can and do vary; past performance does not guarantee future results.

It is important that you do not use this e-mail to request or authorize the purchase or sale of any security or commodity, or to request any other transactions. Any such request, orders or instructions will not be accepted and will not be processed.

All items discussed in this report are for informational purposes only, are not advice of any kind, and are not intended as a solicitation to buy, hold, or sell any securities. Nothing contained herein constitutes tax, legal, insurance, or investment advice. Please consult the appropriate professional regarding your individual circumstance.

Stocks and bonds and commodities are not FDIC insured and can fall in value, and any investment information, securities and commodities mentioned in this report may not be suitable for everyone.

U.S. Treasury bonds and Treasury bills are guaranteed by the U.S. government and, if held to maturity, offer a fixed rate of return and guaranteed principal value. U.S. government bonds are issued and guaranteed as to the timely payment of principal and interest by the federal government. Treasury bills are certificates reflecting short-term (less than one year) obligations of the U.S. government.

Past performance is not a guarantee of future results.

Different investments involve different degrees of risk, and there can be no assurance that the future performance of any investment, security, commodity or investment strategy that is referenced will be profitable or be suitable for your portfolio.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material.

The information contained is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.

Before making any investments or making any type of investment decision, please consult with your financial advisor and determine how a security may fit into your investment portfolio, how a decision may affect your financial position and how it may impact your financial goals.

All opinions are subject to change without notice in response to changing market and/or economic conditions.

Copyright © 2020
Financial Jumble, LLC
Everspire
All rights reserved